If you struggle with debt, you’re not alone. Between credit cards, student loans, mortgages, and car payments, the vast majority of Americans carry some sort of debt. Whether it’s to afford college, move into your first home, or deal with an unexpected health issue, there are endless reasons why you might need to rely on a financial cushion.
Regardless of the reason, you’ve decided that enough is enough — it’s time to consolidate your debt. Here are some steps to get you started down the right path.
Admit That There’s a Problem
The first step to solving any problem is acknowledging that it actually exists. With debt, this isn’t easy. It means confronting past choices and how they have helped create your present struggles. It means creating and sticking with a budget. And it may mean asking for help.
Luckily, there are many options for low-cost or even free credit counseling services if you don’t want to go it alone. They can help with debt management, budgeting, student loans, bankruptcy, and a variety of other issues. Just make sure they have accreditation from the National Foundation for Credit Counseling or the Financial Counseling Association of America.
Make a List
Take a deep breath and make a comprehensive list of your debts. This may not be easy, but it’s a crucial step. Be sure to include minimum payment, total balance owed, due date, and interest rate.
Now that you have all the details in one place, you’ll need to decide how to pay them off. Which one should you tackle first? The one with the lowest balance? Or the one with the lowest interest rate? There are many schools of thought on this, so do your research and pick the one that’s right for you.
Make Your Minimum Monthly Payments
No matter what tactic you use, your top priority should be to meet your minimum monthly payments. Anything less, and you will incur fees and risk damage to your credit score. If you’re a student paying off loans and earn less than $80,000 in adjusted gross income, making your monthly payments could also get you a tax break.
Rewrite (and Stick to) Your Monthly Budget
Any budget worth its salt must include debt repayment and an emergency fund. The former addresses your current debt crisis, and the latter acts as a safety net to prevent new crises from forming.
Hold yourself accountable to following the budget. If it just seems too hard, rework it into a solution that is achievable, then slowly turn up the degree of difficulty over time.
Earn More, Spend Less
Your personal budget may be too tight to allow for debt repayment. In that case, see what else you can do to make more money. The gig economy is still going strong, and there are many opportunities to parlay your skills into extra income, all of which should go toward debt repayment.
On the flip side of that coin, take a hard look at your spending and see where you can cut back. There are small steps that can have a big impact, such as blocking your favorite shopping sites from your browser or phone and unsubscribing from their email lists.
Lower Your Credit Card Rates
As daunting as your credit card interest rates may seem on paper, they’re not set in stone. Call your credit card companies at least once a year to see if they’ll lower your rates. They’re used to these requests, and often grant them, particularly if you’ve been a loyal customer who pays their monthly minimums on time.
Set It and Forget It
One of the simplest ways to manage debt is to automate your payments (and it can’t hurt for all other bills). This goes for your emergency fund as well — set up a recurring transfer to your savings account and you’ll never again have to wrestle with the decision to put money away for a rainy day.
Combine all your obligations into a single payment and you may owe less in interest, pay off debt faster, and boost your credit score in the process. But there are some potential pitfalls. When those credit cards are zeroed out, it can be tempting to use them again, which can make your debt hole even deeper. Student loan consolidation can limit your options for payment deferment or forgiveness.
Play the Long Game
No matter how you decide to handle it, remember that it took a long time to accumulate your debt, and it will take time to get rid of it. The steps listed above will hopefully provide a useful roadmap of the task ahead.
USALLIANCE stands ready to help you on this journey, and our monthly payment calendar is a great tool for showing you what lies ahead.